Get ready to go over the fiscal cliff…Austerity is coming, even if cliff is avoided

Tuesday, December 4, 2012
By Paul Martin

By Irwin Kellner
Dec. 4, 2012

PORT WASHINGTON, N.Y. (MarketWatch) — Agreement or not, 2013 will bring higher taxes and lower spending, so be prepared.

As you know, current law dictates a humongous rise in taxes and a massive cut in spending, come the New Year. Under the Budget Control Act of 2011, taxes are scheduled to jump by around $500 billion, while spending will have to be slashed by over $100 billion.

This is an amount equal to 4% of our gross domestic product. It will be enough by most economists’ reckoning to push the economy back into recession.

Under this scenario, just about everyone’s taxes will go up, while spending on many pet projects will fall. This draconian result will clearly make all of the people unhappy, and the politicians know it. That’s why it will not happen.

But just because pols are not likely to pull a Thelma & Louise and drive us off the cliff, don’t think for one moment that getting through 2013 is going to be a piece of cake. Indeed, it will be just the opposite.

Let’s start with one indisputable fact: In order to avoid going over the cliff, the pols are going to have to come up with an agreement of one kind or another that will allow them to modify the current law while still appealing to their respective bases. This agreement has to involve raising tax revenues and cutting spending in order to shrink the deficit and thus reduce the size of our debt relative to GDP.

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